UK: Consultation: Capital Gains Tax For Non-Residents Disposing Of Residential Property

Last Updated: 9 April 2014
Article by Nick Burt

Summary and implications

The Chancellor of the Exchequer announced in the 2013 Autumn Statement that from April 2015 the Government will extend capital gains tax (CGT) to gains made by non-resident individuals disposing of UK residential property.

The Government has now published its consultation document, which sets out the proposed design for the extension of the CGT charge and has revealed that the scope of this new charge will be wider than anticipated.

The headline points are that:

  • the definition of "residential property" is broader than expected, and includes student accommodation;
  • the CGT will not just affect individuals, but also a wide range of property ownership structures through which individuals invest, such as partnerships, companies and funds; and
  • the charge will apply from April 2015 in respect of gains arising after that date.


The Government proposed this new regime as a means of addressing what it described as an imbalance between the treatment of UK and non-UK residents disposing of residential property. While the UK does not generally charge CGT on disposals by non-residents, UK residents are subject to CGT or corporation tax. The Government's intention behind this new regime is that, going forward, non-residents and residents making gains on UK residential property will be subject to UK CGT in a comparable way.

Definition of "residential property"

The Government intends to extend the CGT charge to property "used or suitable for use as a dwelling i.e. a place that currently is, or has the potential to be, used as a residence", and it has confirmed that this will include property that is in the process of being constructed or adapted for such use.

Somewhat surprisingly, the consultation document suggests that residential accommodation for students will be caught by the new regime, although it does propose to exclude property used as a home or other institution to provide residential accommodation for children or school pupils, and accommodation that is part of a hall of residence attached to an institution. Other exclusions outlined by the consultation document include accommodation to provide care (such as nursing homes and hospitals) and various types of communal accommodation.

In addition, disposals of multiple dwellings, which are treated as a non-residential land transaction for SDLT purposes, will not be excluded from the extended CGT charge.

The consultation document also confirms that the Government believes the new regime should cover gains made on disposals of residential property used as an investment and so it does not intend to introduce any reliefs from CGT to apply to rental properties.

Who will be caught by the new CGT charge

When the proposed extension of CGT was first announced, the expectation was that only non-UK resident individuals were intended to be caught by the new regime. However the consultation document makes it clear that the Government is considering extending CGT to gains made on the disposal of UK residential property by:

  • non-UK resident partners of partnerships;
  • some non-UK resident companies;
  • Non-UK resident trustees; and
  • certain funds.

However the Government has confirmed that it does not propose to extend CGT to foreign REITs or non-residents investing in UK residential property through UK REITs.

a) Partnerships

As partnerships are tax transparent, each UK resident partner of a partnership that realises a chargeable gain on the disposal of UK residential property is charged CGT to the extent they are entitled to the gains (in accordance with the partnership agreement). The Government intends to extend this same approach to non-UK partners, so that any partners in a partnership who are non-resident will be taxable under the extended CGT regime to the extent that gains are attributable to them.

b) Non-UK resident companies

With the introduction of the Annual Tax on Enveloped Dwellings (ATED) from 6 April 2013, non-UK resident companies which own residential property worth more than £2 million are already currently subject to ATED-related CGT on gains made on a disposal of any such property during a period in which ATED is payable. There are a number of reliefs available though, including an exemption for "bona fide" property investment companies.

The Government has now announced that it proposes to extend the CGT regime to gains made by non-resident companies, and is therefore considering introducing a tailored charge (within either CGT or corporation) on disposals of UK residential property. Unlike under the ATED regime, there is not expected to be any relief from this new CGT charge for property investment companies.

The Government's decision to include non-resident companies within this new regime is surprising, given how recently the ATED regime was introduced, and although the consultation document indicates that these two separate regimes will operate alongside one another, it does not make it clear how they will interact.

The Government has not confirmed what rate of tax would be charged on disposals of UK residential property by non-resident companies.

c) Non-UK resident trustees

When trust assets are disposed of, the trustees are subject to CGT as a single person (not individually) on any gains realised, provided the trustees as a whole are regarded as being resident in the UK. Trustees are considered UK resident when either (i) all the trustees are resident in the UK; or (ii) some of the trustees are resident in the UK and the settlor was UK resident or UK domiciled at the time the trust was established.

The Government's view is that non-resident trustees should also be subject to CGT on the gains that they make on disposals of UK residential property, and the consultation document states the Government is minded to include all types of trust within the scope of the new regime.

d) Funds

The Government has confirmed that it does not intend to tax non-residents on disposals of shares or units in a fund that invests in UK residential property (due to the perceived difficulties in monitoring disposals of units of investment in residential property within funds that manage multiple types of investment for a wide group of people). This is despite the fact that UK residents are subject to CGT on the gains they make when disposing of shares or units held in these funds.

However, the Government believes it may be appropriate in some cases to charge CGT at fund level. The Government intends to introduce a "genuine diversity of ownership" (GDO) test to ensure that only funds that are closely held are caught by the extended CGT regime. The nature of the test is unclear at this stage, and the Government is yet to determine the best way of introducing charges on those funds that fail the GDO test.

The Government has confirmed that pension funds investing in funds will be excluded from the scope of the regime.

Implementation and enforcement

The Government has confirmed that it intends to make the CGT annual exemption, which is available to UK resident individuals, available to non-UK resident individuals under the extended regime. The normal CGT tax bands and rates of tax are expected to apply, and only UK source income and gains will be relevant in determining the relevant tax band in which the gains fall.

The Government has not yet confirmed the rate of tax that will apply to companies and other vehicles. However the consultation states that the rate chosen will need to be "fair and comparable to the rates of tax charged on UK residents".

In terms of enforcement, the Government has recognised there may be difficulties collecting CGT from non-UK residents and so its preference is to implement a form of withholding tax that will operate alongside the option to self-report on the tax due. The consultation document notes that a number of other countries use withholding taxes in this situation.


The focus of the consultation is to refine the scope and structure of the proposed CGT extension, and the consultation period is open until 20 June 2014.

The extended CGT regime is not being introduced until April 2015 and the Government has confirmed that the new CGT charge on non-residents disposing of UK residential property will only apply to gains arising from April 2015. Therefore there should be sufficient time, following the outcome of this consultation, to consider any action that should be taken in advance of its implementation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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